Blockchain and Supply Chain are Becoming Inextricably Tied

Stephen DeAngelis

September 03, 2019

In the past, articles about blockchain (aka distributed ledger) technology primarily focused on cryptocurrencies, like Bitcoin. Increasingly, however, articles about blockchain technology focus on how it can help improve supply chain operations. Today’s supply chains are mindbogglingly complex and blockchain has the potential to address some of that complexity. David Higgins, EMEA Technical Director at CyberArk, explains, “It only takes a quick Google search of ‘supply chain diagrams’ to see how complicated the modern day supply chain has become. There are numerous — sometimes hundreds or even thousands — of suppliers, partners, third parties, bankers and lawyers involved in in the process of producing and distributing products for consumers. As a result, simple data and financial transactions often turn into lengthy, multi-step procedures. Compounding these challenges, supply chains are increasingly frequent targets of cyber crime. A recent Supply Chain Insights study revealed that the number one event impacting supply chains from 2013 to 2018 was cyber attacks or computer hacking. Blockchain has the potential to turn the tables, helping organizations streamline supply chain management (SCM), bolster cybersecurity across each touchpoint, maximize customer value and maintain a competitive edge.”[1]

Richard Howells, SAP’s Vice President for Solution Management for the Digital Supply Chain, believes blockchain will not only help address complexity but will reduce costs as well. He observes, “We see several use cases for blockchain in complex global supply chains, for example in logistics processes, it has been estimated that 90 percent of global trade is carried out by ocean shipping industry, and the cost of trade related documents and administration is estimated to represent up to 20 percent of the actual transportation cost. … Imagine if we could digitize the process to collaborate across companies and authorities, reduce the paperwork, streamline cross boarder movements, and reduce fraud and errors. Blockchain has the potential to help enable us to manage and track a ‘digital twin’ of shipping containers across the world.”[2] Nikki Baird (@nikkibaird), Vice President of Retail Innovation at Aptos, agrees blockchain and supply chain are good match. She writes, “Supply chains depend heavily on cross-border situations where smart [i.e., blockchain-enabled] contracts could address current processes that are dependent on a lot of paperwork, letters of credit, escrow accounts, multiple currencies, and increasing governmental requirements around visibility into ports of origin, cargo contents, and general supply chain visibility.”[3]

Addressing supply chain complexity

Analysts at ShipChain write, “Due to [supply chains’] inherent complexity, there are ample opportunities for items to be misplaced, lost, or stolen. The only way to combat these issues is to increase visibility at all points in the supply chain. Enter blockchain.”[4] They explain, “Each transaction in the supply chain could benefit from improved visibility and traceability. Blockchain in the supply chain can be used to create a distributed ledger to all parties, enhancing visibility and compliance. Blockchain’s tamper-proof nature eliminates any concerns over data validation, costs of managing data, time delays, and human errors. Decentralized data in blockchain also enables real-time visibility into the supply, applicable to optimized supply chain management.” Hailey Lynne McKeefry (@HaileyMcK) writes, “Supply chain professionals are talking a lot about blockchain, and how it can be applied to address the increasingly global and complex nature of the supply chain. However, we are still in early days, with only about three in ten companies actively implementing the technology.”[5] McKeefry goes on to note some of the areas where blockchain shows promise. They are:

  • Tracking products moving through the supply chain
  • Sharing information with suppliers
  • Tracking payment information, such as purchase orders
  • Sharing information with customers
  • Managing trade documentation
  • Verifying and monitoring suppliers
  • Managing supply chain risk
  • Managing demand and supply planning
  • Managing inventory
  • Managing freight transportation
  • Managing product returns

McKeefry’s list demonstrates why so many analysts believe blockchain technology has great potential. Shelly Madden (@ShellyMadden) observes, “[Blockchain] can target specific pain points in supply chain processes, such as traceability, compliance, flexibility and stakeholder management. This can lead to better performance when it comes to monitoring products, ensuring high standards are met, keeping costs down and reducing risk. Indeed, blockchain has a myriad of capabilities, including auditability, immutability, smart contracts and disintermediation, making it an attractive option for many an organization.”[6]

Blockchain is not a silver bullet

Although blockchain sounds great, McKeefry notes, “As real as the promise of blockchain, stumbling blocks including a lack of standards and interoperability as well as low awareness remain.” Madden adds, “Blockchain technology is not suitable for every supply chain.” Varun Ebenezer, a senior IT audit manager at BMO Financial Group, writes, “As is the case with any emerging technology, there are several risks with blockchain that should be considered by organizations that plan to use it.”[7] Along with the lack of standards, he notes the absence of clear regulatory guidance. “Due to these conditions,” he writes, “caution must be used when deploying blockchain technology at an enterprise level. … Blockchain is not practical for every organization, and management must ensure that its use supports business objectives accordingly.”

Concluding thoughts

Kasey Panetta (@kcpanetta), a Brand Content Manager at Gartner, predicts, “Blockchain could have a transformative impact across supply chains in five to seven years, and has the potential to transform and disrupt supply chain. … Though adoption at scale is likely at least 10 years away or more, CSCOs should start to consider the potential application of blockchain within the enterprise, albeit with a heavy amount of skepticism.”[8] Higgins agrees blockchain remains in its early stages and will undoubtedly suffer from growing pains. “While blockchain has certainly sparked positive change across the supply chain industry,” he writes, “widespread adoption will not happen overnight. Given its distributed nature, the greatest barriers to blockchain are cooperation and scale. To gain true end-to-end visibility and enhanced data security across the supply chain, it’s not enough for one or two suppliers to employ the technology — all parties must join the blockchain platform and agree to abide by its standards.” Despite these growing pains, most analysts agree blockchain and supply chain will be inextricably connected in the years ahead.

Footnotes
[1] David Higgins, “Supply Chain Meets Blockchain: A Perfect Match,” CyberArk, 25 July 2019.
[2] Patrick Burnson, “Blockchain Remains Top of Mind for Supply Chain Managers, Says SAP,” Supply Chain Management Review, 22 July 2019.
[3] Nikki Baird, “Retail Blockchain Deep Dive: Supply Chain,” Forbes, 29 June 2019.
[4] Staff, “How Blockchain in the Supply Chain will Empower Supply Chain Management,” ShipChain, 29 May 2019.
[5] Hailey Lynne McKeefry, “Blockchain & Supply Chain: Early But Promising,” EBN, 29 May 2017.
[6] Shelly Madden, “What happens when supply chain meets blockchain?” SiliconRepublic, 23 November 2017.
[7] Varun Ebenezer, “How to approach blockchain deployment while mitigating risk,” Information Management, 12 February 2019.
[8] Kasey Panetta, “Why Blockchain Matters to Supply Chain Executives,” Smarter with Gartner, 9 July 2018.